TINA, the acronym for “there is no alternative” to buying equities has been a fixture of the financial landscape for some time as evidenced by the chart showing the real US 10Y yield (deflated by CPI) less the dividend yield on the S&P 500. The same picture can be demonstrated using most fixed income assets, […]

Market expectations for Fed rate hikes in mid-2022 look misplaced unless this chart begins to change to the upside. Despite 5y breakeven inflation at record highs and constant chatter on underlying inflation risks by analysts and in the media (which we are sympathetic to), the underlying reality is that long term inflation expectations that have […]

The velocity of money gives us a useful way to view inflation risks that have thus far been largely dispersed across sectors suffering supply shocks stemming from post pandemic economic re-openings. The tapering announcement by the FOMC yesterday included a statement by Powell that inflation risks are likely to be transitory. However, if supply chain […]

The attached chart supports the view that demand will remain strong despite surging energy prices and that business pricing power will also remain firm for the foreseeable future. That bodes well for operating leverage despite rising input costs from both labor and goods owing to well documented supply chain issues and higher commodity prices.  The […]

Recent forecasts by the Fed’s staff in Washington has received much press of late in their expectations for inflation to decelerate back towards 2% in 2022. That feels like a heroic statement, almost foolish. However, it is not and as a former Fed economist, I have utmost respect for their forecasting ability. The key point, however, […]

We expect the Fed to begin its long-awaited tapering process at the November FOMC meeting. When the central bank is buying $120B in securities a month a reduction to $105B or $110B may not appear to be significant. It is, however, a critical first step to tighter financial conditions. Fed Chair Powell suggests the full “taper” […]

A common misconception is that a sustained rise in core inflation over time depends on wage inflation, but that is only part of the story. The true driver of trend core inflation is unit labor costs, and for those old enough as me will remember it was former Fed Chairman Alan Greenspan’s favorite measure of […]

Global dollar liquidity surged in 2020 with the Fed’s $120B monthly bond buying program flushing the system with enormous sums of cash that facilitated the fastest post-recession gain in equities since WWII. All this liquidity needed to find a home and it did out the risk curve where investors remained giddy, paying a premium for […]

This chart foreshadows how real returns in equities are likely to evolve over coming years based purely on a host of standardized valuation metrics plotted against real equity returns over subsequent years. Equity valuations are high, we know that, but the chart nicely illustrates what that may mean for future returns based on previous periods […]